Dividend Discount Model (DDM)
P = D₁ / (r − g). Stock price = next dividend / (required return − growth rate).
Result
Stock price
$50.00
2.5 / (9.0% − 4.0%).
- D₁ (next dividend)$2.5
- r (required return)9.00%
- g (growth)4.00%
- r − g5.000%
- Price$50.0000
- Implied dividend yield5.00%
Step-by-step
- P = D₁ / (r − g) = 2.5 / (0.0900 − 0.0400) = $50.00.
How to use this calculator
- Enter next dividend D₁.
- Enter required return r (CAPM).
- Enter growth rate g (≤ long-term GDP growth).
About this calculator
DDM: stock price = present value of future dividends, growing at rate g forever, discounted at r. Best for mature dividend-paying companies (utilities, consumer staples). Limitations: assumes constant growth forever (unrealistic), highly sensitive to r−g spread (5% → 4% halves price), useless for non-dividend stocks. For multi-stage growth, use H-model or three-stage DDM.
Frequently asked
Otherwise denominator is zero or negative — infinite or negative price. Real growth must be < required return long-term.
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